ISSUE 89 | DISPLAY TO 31 OCTOBER 2018 | www.asian-power.com | A Charlton Media Group publication
tHE wOmAN BEHIND ASEAN’S BIGGESt SOlAR FARm
B.GRIMM POWER CEO PREEYANART SOONTORNWATA TAPS INTO ASEAN AS ThE FIRM BUILDS 677-MW SOLAR PLANTS IN VIETNAM
jAPAN’S AIlING NuKE REStARtS SuNNy DEAlS SHINE IN tAIwAN ARE m&A DEAlS OvERvAluED? wHy ASIA CAN’t GO All Out ON GEOtHERmAl
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FROM THE EDITOR Asian Power’s September-October 2018 issue tackles how the nuclear revival of post-Fukushima Japan remains stuck in the doldrums amidst continued opposition and escalating operational costs. Operators are also turning to natural gas and renewables, as seen in TEPCO’s 7GW of energy targets. Is it too late for nuclear energy in Japan? Find out on page 14.
Publisher & EDITOR-IN-CHIEF Tim Charlton production editor Danielle Mae V. Isaac Graphic Artist Elizabeth Indoy
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Indonesia’s landmark 330MW Sarulla geothermal power plant is now fully operational, and investors and operators are rejoicing at the prospect of the power source finally growing in the ASEAN. However, administrative, regulatory, and even logistical concerns remain. Find out why Asia can’t seem to tap into its rich geothermal potential on page 22. Things are going well for Singapore’s power sector, or are they? Retailers in the open market are getting called out for marketing gimmicks, some experts doubt the government’s energy targets are enough, and companies are scratching their heads over a carbon tax. Read more on page 16. We also caught up with the CEO of Thailand’s B.Grimm Power, Preeyanart Soontornwata. Find out her outlook towards renewables in Southeast Asia as the company co-develops the largest solar farm in the region at page 13.
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ASIAN POWER 1
CONTENTs
INterview 12 CEO b.grimm power builds asean’s biggest solar farm
07 Are energy M&A deals overvalued? 08 Risks in India’s solar duties 10 Sun’s out for Taiwan’s renewables
Country report 14 Will renewables save Japan’s nuke restart?
22
secTOR REPORT Asia’s untapped geothermal potential could be key to region’s energy sustainability
ANALYSIS
FIRST 06 Can Japanse banks hold onto coal-free promises?
16
COUNTRY REPORT Singapore revs up renewables push amidst solar and carbon tax uncertainties
20 Why India’s coal plant cancellations are moving
at a rate faster than expected
24 Warning lights flash for Asean’s coal IPPs 28 Tech upgrades propel offshore wind as Asia’s coal replacement
OPINION 30 China’s Silk Road Fund to invest in “Dubai” solar project 32 Generation 3.0 for the IPP Business in ASEAN
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News from asian-power.com Daily news from Asia most read
Regulation
Indonesia’s Central Java targets 21% renewables demand by 2025 The Central Java province of Indonesia has set a 21% target for renewables in total energy demand, 2% lower than the national target of 23%. It plans to issue a bylaw to adjust the gap between the targets. Currently, the renewable share in Central Java’s energy supply is 10%. Indonesian renewables accounted for 12.6% of the energy mix in 2017.
power utility
Power shortage in 2020-2030 looms over Vietnam Vietnam is expected to face a power shortage in 2020 to 2030 given that it doesn’t get enough coal and gas for generation, local media reports. By 2018, the country’s total installed capacity could reach 47,768MW, ranking 25th in the world.
4 ASIAN POWER
project
Thailand’s B.Grimm Power inks two solar deals in Vietnam TEPCO plans to develop between 6 GW and 7 GW of new renewable energy capacity both in Japan and overseas The group plans to focus on offshore wind power (2 GW of which to be built in Japan, including floating wind projects, and 2 GW overseas) and on hydropower operations in Japan and South East Asia. Currently, renewables account for only 15% of its output.
power utility
China Southern Power Grid buys 25.48% stake in Encevo China Southern Power Grid bought a 25.48% minority stake in European utility company Encevo S.A., private investment firm Ardian revealed. Reports from local media said the deal is worth €400m. The firm owns Creos and Enovos Luxembourg.
Power utility
Daewoo discovers gas in Bay of Bengal, Bangladesh South Korea’s Daewoo made a gas discovery in Block D-12 in the Bay of Bengal in Bangladesh, next to Myanmar’s Block AD-7, in a basin that is shared between Bangladesh and Myanmar. Bangladesh could hold five structures that would near three gas fields in Myanmar having 8 tcf (226 bcm) of reserves. The five structures could be moderate gas fields.
regulation
China lodges complaint against US’ tariffs on solar cells China has lodged a complaint to the World Trade Organisation over the US’ decision to subsidise renewable energy firms and impose tariffs on imported products like photovoltaics. The tariffs will be imposed for four years starting at 30% in the first year.
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FIRST x energy deal surge SOUTHEAST ASIA vietnam
Renewables capacity couldWood hit 1.8GW in 2027 Dr Bikal Kumar Pokharel, Mackenzie
W
hen B.Grimm Power agreed to pay $34m to buy a stake in a 420MW solar photovoltaic (PV) project in southwest Vietnam in July 2018, it became one of the new solar power projects marking the surge of investment in the country. Trung Nam Solar Power had a slightly larger investment of $216.5m to build a 204MW solar PV project in the Ninh Thuan province, whilst Sunseap International also broke ground for a 168MW solar project in the same province for about $150m. “The solar project pipeline has expanded notably,” said Fitch Solutions. These new projects are expected to come online and boost solar capacity to 850MW by 2027. But Vietnam is not only powering up with solar, it is also making strides in boosting its wind capacity. Wind capacity is expected to go over 700MW by 2027. Recently, the People’s Committee of Quang Tri Province approved two wind projects. A 30MW Huong Hiep 1 wind project proposed by Tan Hoan Cau Corporation is estimated to cost more than $68m and is planned to be put online in December 2020. Investment challenges According to Fitch Solutions, this trend indicates a surge of new non-hydro renewables projects in Vietnam that are opportunities for future investment. It projected that non-hydro renewables capacity could reach 1.8GW in 2027, up from its previous 1.2GW forecast. Dang Duong Anh, managing partner, Vietnam International Law Firm, also commented, “The surge in activity includes project approvals as well as project transfers to technically experienced and financially capable developers, which is a positive trend, but whether it can fulfill the nation’s renewable energy potential remains to be seen.” The government has suspended the approval of other projects for a national master plan for the development of solar power. Over 70 projects with a total capacity of 3GW have been approved within relevant master plans. Fitch Solutions noted major challenges remain for the industry. “Low subsidies on offer to developers and an underdeveloped regulatory framework for renewables formed a major bottleneck to growth in the sector,” it said. “We note that despite some lingering uncertainties with regards to the country’s feed-in tariff programme, the investment environment has improved, in line with the government’s increasing support for the sector. New preferential policies, reportedly involving tax incentives, and a string of project approvals has boosted the project pipeline significantly,” Fitch Solutions said.
6 ASIAN POWER
Japan’s banks provided $8.6b to the coal sector
Can Japanse banks hold onto coal-free promises?
D JAPAN
ue to local and global pressure, Japan’s financiers and banks pledged to curb coal financing and start investing in renewables, and that will be put to the test with three plants in Vietnam, Mongolia, and Botswana. The three plants, which have a combined capacity of 2,070MW, run the risk of a financing pullout. Amongst these projects are Vietnam’s Vung Ang 2, Van Phong 1, and Nam Dinh 1 projects that have the backing of all three of the Japan’s largest banks — Sumitomo Mitsui Banking Corp (SMBC), Mitsubishi UFJ Financial Group (MUFG), and Mizuho Financial Group (Mizuho). The three are amongst the heaviest backers of coal projects in the country. $8.6b in coal The 2018 Banking on Climate Change report estimates that SMBC, MUFG, and Mizuho have provided a combined $8.6b in financing aid to the coal power sector from 2015 to 2017. However, heightened scrutiny over their pro-coal policies have prompted the country’s Big 3 to tighten their coal-financing policies last May 2018 in a move that signals a long overdue shift towards cleaner energy finance. In its updated coal policy, SMBC said that it will be limiting financial support to coal-fired power plants that use ultrasupercritical such as those with
SMBC, MUFG, and Mizuho have provided a combined $8.6b in financing aid to the coal power sector from 2015 to 2017.
a steam pressure >240 bar and >593 degrees steam temperature or emissions < 750g CO2/kWh. MUFG Bank, on the other hand, indicated that it will refer to international guidelines such as the OECD Arrangement on Officially Supported Export Credits, in the provision of coal power financing. On its part, Mizuho did not categorically state how it will limit coal investments but only stated that the “primary considerations is whether the use of greenhouse gas-producing technology is appropriate due to economic necessity when compared to feasible alternative technologies which offer similar levels of energy efficiency.” However, it was implied that it is also applying international guidelines in terms of financing projects with ultrasupercritical technology. It all sounds good on paper but Market Forces suggested that banks have a lot to lose should they follow through with this pledge. SMBC and MUFG’s new coal policies rule them out of 27% and 31% respectively of the prospective new coal power projects by capacity whilst Mizuho would be ruled out of 40% of the projects by capacity. “The only projects that would remain are ultrasupercritical. Where the technology type is unknown, it is assumed that the banks would be ruled out of these projects if it becomes evident that they are subcritical or supercritical,” Market Forces added in the report. Slowly but surely, Japanese banks are going greener as they place more emphasis on renewables projects with MUFJ and SMFG steadily becoming two of the largest lead arrangers globally for clean energy asset financing amidst steady strides in Europe and Taiwan. “It is therefore imperative that Japanese commercial banks show leadership to redirect finance away from all polluting coal projects through policy and practice,” Market Forces added. “These policies should therefore only be seen as a first step, albeit a significant one, towards further policy change.”
Number of projects Japanese banks are reportedly involved in; Capacity
Source: Market Forces
FIRST
Philip Whitchelo
Total deal value jumped by a whopping 80% in H1 2018
Are energy M&A deals overvalued?
S
asia
o far, the year 2018 has seen a flurry of high-value energy & power deals over $4b, but a firm is concerned that some deals are priced way too high, as the valuation multiples of mergers & acquisitions globally are currently two standard deviations above their 30-year average. In the Asia-Pacific, deal values are 0.8 standard deviations above their 30-year average, Intralinks revealed. Is Asia Pacific in a deal euphoria? The total transaction value of M&A deals in the region soared by 80%, whilst the total number of deals jumped by just over 8%. Energy deals led the surge of deal announcements in the Asia Pacific for the first half of the year, and they are expected to continue this performance in the second half, said Philip Whitchelo,
vice president of strategic business & corporate development at Intralinks. Energy deals run high “The increase in APAC E&P activity can be attributed to improving oil and commodity prices in 2018: over the last 12 months, the global oil price is up around 40% to $74/barrel and the S&P GSCI is up around 20%,” he explained. “Sentiment in the E&P sector has improved significantly and more deals are being done.” “I think that one of the main risks is overpaying for assets in the belief that oil/ commodity prices will continue to rise or stay high, coupled with leverage in the sources of financing for acquisitions,” he added. Whilst 55% of the E&P deals are
in the power and oil & gas subsectors, the remainder of the deals are accounted for by alternative energy sources, other E&P segments, petrochemicals, and pipelines. “There is also increasing competition from private equity acquirers for E&P assets, so strategic acquirers are being forced to pay more in order to win deals,” he added. EY’s Q1 report noted a similar global trend as the desire for opportunistic investment in utilities is growing rapidly. Both financial sponsors and corporates are seeking to strategically align their energy portfolios, especially with regulated businesses. “New technology and new competitors are aggressively challenging the traditional monopoly mindset, resulting in disruptive trends, including government and regulatory change, a changing generation mix, grid defection, increasing customer expectations and the entry of nontraditional competitors. Financial sponsors have raised substantial capital over the past three years, and we see large amounts of ‘dry powder’ looking for appropriate power, utilities and energy infrastructure deals,” the EY report said.
Energy & power deals increase early-stage M&A
Source: Intralinks
the chartist: japan’s JAPAN’S reactor SOLAR INDUSTRY restarts IS boost DIMMERnuclear’s WITH JUSTshare 20GW in PROJECTED 2018 energy TO COME mix ONLINE Japan Japan’iss on solar itspower track to sector slashwill fossil expand fuels’at share of robust powerrates generation throughtoto70% 2020 ofas itsaenergy large mix Electricity x generation and purchases mix through backlogits ofnuclear projectsrestarts, supported suggests by feedThe Institute in tariffsof come Energy online. Economics, After 2020, Japan BMI (IEEJ). The Research increases saidinthat thethe energy transition mix were to aled by nuclear reverseenergy auctions andsystem non-hydro will slow renewables. growth, as the Nine Japanese nucleargovernment power plants looks haveto been regulate restarted capacity additions and two more in order will to bereduce restarted subsidy by 2019. costsThe andshare support of nuclear grid stability. generation in the total “We has expect increased Japanbyto3register point from robust 3% in solar 2017 capacity to 6% growth in 2019. through to 2020 as a result ofRenewables, the implementation excluding ofhydropower, a substantialwill expand pipelinefurther of projects underthat the benefit Feed-In-Tariff from a scheme, generous topping feed-inhydro’ tariffssupport share ofscheme. electricity generation Our forecast andispurchases that out ofby a 50GW electricbacklog utilities. ofFossil such projects, fuels’ share only of20GW powerwill generation actually fell come to three online,quarters as mostand willwill notfurther be ablefall. to “However, take advantage the FY2019 of the decrease FiT subsidies will be amid the Source: The Institute of Energy Economics, Japan smallest stringentingovernment five years,” said requirements senior economist and Source: BMI Research Yanagisawa delays in development, Akira. ” BMI Research added.
x Changes in mix
Source: The Institute of Energy Economics, Japan Source: BMI Research
ASIAN POWER 7
FIRST
Risks in India’s solar duties
Recent cancellations of solar auctions and re-tenders
renewables for tepco japan
J
india
ust after Sprng Energy won NTPC’s 2GW solar auction with one of the lowest bids in Indian power auction history at $0.037/ kWh, India’s Ministry of New and Renewable Energy has requested to set the maximum solar tariff at $0.036/kWh, that is if it doesn’t take into account its freshly implemented solar duty. It wants to set the maximum tariff for bidders at $0.038/ kWh if the safeguard duty is levied. It also requested future solar bids to be set in lot sizes of 1,200MW with no upper cap and minimum bid size is to be set at 50MW. “The reason behind setting the lot sizes at 1,200MW is to generate more competition as it has been observed that the recent large auctions have not generated sufficient interest or competitive tariffs to satisfy the government agencies,” said Priya Sanjay of Mercom India. Pricing conundrum IHS Markit research & analysis manager Josefin Berg previously said that India risks aggravating the oversupply of PV modules, the rise of PV module prices, and a brief halt in project development. “By raising module prices, the measure also takes the air out of India’s trend of declining bids in PV tenders, which has made PV one of the cheaper sources of new plant WATCH
Source: Mercom India Research
electricity in the country,” she said. The measure therefore risks delaying new tenders as the off-takers seek to attain the lowest possible bids, Berg said. “Such delays would mainly impact installations in late 2019 and 2020.” It is also unclear if all Indian manufacturers will benefit from the trade measure, as many operate out of Special Economic Zones, wherein duties are applicable. Approximately 4GW of solar auctions have been already cancelled in the recent months. Moreover, three large auctions have been terminated recently. This was recently illustrated by Solar Energy Corporation of India’s (SECI) cancellation of 2.4GW out of a 3GW Interstate Transmission System (ISTS) connected solar auction held in July 2018. It could take at least a month for the issue to be settled, Berg concludes. “Even if favourable for on-going projects, the delay in procurement may cause projects to spill over to 2019,” she said.
Approximately 4 GW of solar auctions have been already cancelled by multiple agencies in the recent months.
Sembcorp India wins 250MW tender
Sprng Energy wins 2GW wind auction
Sanjeev Gupta builds 280MW solar farm
Bangladesh
India
Australia
Sembcorp Gayatri Power Limited (SGPL) power plant clinched a tender conducted by the Bangladesh Power Development Board (BPDB) to supply 250MW of power to Bangladesh over a total period of 15 years. SGPL is also part of a consortium which is developing the Sirajganj Unit 4 power project in Bangladesh that will have a contracted capacity of around 426MW. SGPL will launch its open-cycle operations by late 2018 and is expected to fully operate by 2019. SGPL will need procedural requirements and approvals.
India’s National Thermal Power Corporation (NTPC) auctioned 1.2 GW of interstate transmission system (ISTS) connected wind power projects to be developed across India. Sprng Vayu Vidyut Private Limited emerged as the winner by quoting the lowest (L1) tariff of Rs2.77 (~$0.0397)/kWh to develop 200 MW of wind projects. NTPC is currently foraying into competitive wind auctions after it recently issued the mega tender for 2GW of projects in India. However, after deliberating with bidders, NTPC had reduced the tendered capacity to 1,200 MW.
South Australia will have a new 280MW solar farm. It will be a part of British billionaire Sanjeev Gupta’s global GFG Alliance $1b and 1GW dispatchable renewable energy programme. Called the Cultana Solar Project, the farm will include 780,000 solar panels that can generate 600GWh every year. This could power 96,000 homes and offset 492,000 tonnes of carbon dioxide every year. Construction is expected to begin in early 2019. The project, combined with that of SIMEC ZEN, will become one of Australia’s largest solar farms.
8 ASIAN POWER
Masahiro Sugimura, TEPCO
Asian Power caught up with Masahiro Sugimura, spokesperson at Tokyo Electric Power Company (TEPCO), as he discussed the company’s first wind park and their renewables capacity target of 7GW. Why set the renewables target at 7GW? TEPCO is aiming to make a profit of about $900m (JPY100b) by promoting the renewable energy business in order to fulfill the responsibility to Fukushima. To achieve this goal, 6 to 7 GW of total development scale for domestic and international renewable energy will be required. Which countries are good for renewables investment, and why? TEPCO has been carrying out verification test of offshore wind turbine off the coast of Choushi at Chiba prefecture in Japan. We have an accumulating knowledge on construction, operation and maintenance under severe conditions of marine and weather. In general term, Asian region could be an option for renewable projects due to a high demand potential for electrical power and also a possibility where we can share our business knowledge. Specific target areas where we could maximise our advantages will be decided by assessing economy and risk. Is nuclear power no longer a lucrative investment, thus the focus on renewables? A composition of power source will be decided based on the Basic Energy Plan and the Government policy especially considering into a balance of 3E, Energy Security, Economic Efficiency and Environment. It is also our mission to supply stable and low priced electricity, which emits fewer carbon dioxide. Supply and demand for renewable energy has a tendency to rise because an expectation for renewable energy has been rising globally due to ambitious reduction target of greenhouse gas of the Paris Agreement. Renewable energy business will be profitable enough to contribute to its corporate value since costs have been decreasing. Therefore, the renewable energy can be said a big business opportunity for TEPCO group. What is TEPCO’s goal for its proposed wind park? We will establish the value chain in Japan from technical development, site development, its design, construction, and operation & management. Wind is predicted to account for approximately 70% of the total development scale for our renewable energy business.
CO-PUBLISHED CORPORATE PROFILE
Ansaldo Energia’s GT36 gas turbine boosts serviceability and flexibility By providing high efficiency and outstanding serviceability, the GT36 engine offers an opportunity to balance power needs with cost savings.
A
power plant is only as good as its turbines. This is why it is crucial to select a highperformance turbine which is easy to maintain and offers operational flexibility. With the huge availability of several other turbines in the market, it is difficult to discern which provides the best value and return of investment. Say hello to Irene Sofia, Ansaldo Energia’s first GT36 gas turbine. “The GT36 offers the size and efficiency level of the H-class turbine in combination with an unmatched operational flexibility. This is a key feature needed in today’s and future power markets,” says Thorsten Osterhage, product manager of the GT36. “It offers a combination of performance, operational flexibility and easy maintainability which will result in high dispatch, giving the best value and return of investment to the utilities,” he adds. Superior performance The GT36 follows in the footsteps of Ansaldo Energia’s well-trusted GT26 line. Built on the evolution of several generations of proven technology, the GT36 gas turbine offers high efficiency at full and part load, low emissions, a high turn-down capability and high fuel flexibility. Entering in the very large class, the GT36 has been designed to serve evolving customer needs by reducing cost of electricity and CO2 emissions, increasing operational flexibility and offering outstanding serviceability. “The GT36 applies sequential combustion to ensure superior operational flexibility for dynamic power markets, including, but not limited to, high part-load efficiency, lower emissions for a broader emission-compliant operation window, and a lower turndown point (parking load) to 10-15% plant load, as opposed to shutting down the entire
power plant,” Osterhage explains. In addition to its large load range, the GT36 gas turbine can switch between two operational modes: Performance Optimized Mode and XL (eXtended Lifetime) Operation Mode. The first produces maximum performance and output, while the second allows for longer service intervals reducing the maintenance cost. Gas power plant operators can switch between the two operation modes online during operation. These options allow power providers an unmatched opportunity to balance power needs with cost savings. The GT36 also boasts easy constructability and maintenance. “Exchange of all blading can be done with rotor in place and due to the welded rotor design the rotor is maintenance free,” Osterhage says. A proven track record Ansaldo Energia is a leading international player in the power generation industry. It has over 150 years of technical expertise, and its current services brings an integrated model embracing turnkey power plants construction, power equipment, manufacturing and services and nuclear activities. Its long track record in the electrical and mechanical engineering business is coupled with its in-house capability for all major components, such as generators, steam and gas turbines. Ansaldo Energia offers multiple choices: from the turboset package, which can be supplied as a standalone equipment or by integrating the thermal cycle to provide the entire power island, to the complete turnkey plant. Ansaldo Energia is active as full service provider
GT36 validation plant in Birr, Switzerland
with a broad portfolio on heavy duty gas turbines offering complete maintenance solutions on power generation rotating equipment and plants, built both by itself or by other OEMs. For the GT36, Ansaldo Energia offers a full and flexible range of service solutions, from Transactional Services to Operation & Maintenance contracts. It also offers customized service agreements to allow customers to choose the best solution to fit their needs. The efficiency, low emissions and versatility of the GT36 helps power plant operators to meet increasing need for flexible and environmentally-friendly gas power solutions. “Ansaldo Energia has a very large in-house technology portfolio. This technology portfolio allows Ansaldo Energia to offer the largest service portfolio not only on our own OEM but also on other OEM technology,” Osterhage says. Ansaldo Energia employs over 4,500 people and has an international presence through local companiesin Italy, China, Switzerland, the Netherlands, the United Kingdom, the United Arab Emirates, Russia, and the United States.
CONTACT Company name: Ansaldo Energia S.p.A. Address: 16152 Genoa - Italy - Via N. Lorenzi, 8 Phone number: +39 010 6551 Fax number: +39 010 6553411 Email: info@ansaldoenergia.com Website: www.ansaldoenergia.com
“When it comes to providing value for money, Ansaldo Energia’s new GT36 turbine is the best in its class.” ASIAN POWER 9
FIRST
Charlie Reid
Taiwan wants to hit 20GW capacity for solar power alone
Sun’s out for Taiwan’s renewables
W
taiwan
hen global investment firm BlackRock Assets bought the largest floating plant in Taiwan with 4.2MW capacity that powers homes in the coastal suburbs of Yong An, it marked the increased investment in Taiwan’s energy sector. The plant is part of the portfolio that BlackRock Assets bought from Taiwanese firm J&V Energy. In total, the portfolio has 28 assets, which consists of operating and construction projects expected to be fully operational in 2019. BlackRock said it is positive that the assets offer the prospects of stable and long-term income for investors whilst securing attractive 20-year feed-in-tariff
(FIT) contracts. Outside of the deal, however, lies a larger prospects of the country’s energy sector. Of all Asian markets, Taiwan stood out to the firm due to two factors. Taiwan’s solar power shines In an interview with Asian Power, portfolio manager of the BlackRock Renewable Power Charlie Reid said, “Firstly, the scale of the growth in the market is reaching a significant demand for capital to build renewable projects in Taiwan, which is attractive for us. Secondly, the projects are backed up by strong regulatory support through 20-year FITs in order to attract capital
investment in the market.” Taiwan’s renewables target of 25GW for 2025, of which 20GW will come from solar alone, is also attractive to the firm. “We’ve invested across a different range of renewable technology and we’d be keen to invest in onshore wind and offshore wind in the Taiwanese market as well, but solar is clearly gonna make out the lion’s share of new capacity additions over time in Taiwan,” said Reid. He is also bullish towards the country’s energy targets. “When governments themselves set targets for renewable deployment, they tend to hit or exceed those, so the target is currently 20GW by 2025, and we think that the market will reach those levels. That involves a significant amount of deployment over the coming years and will require a significant amount of capital during that time,” the portfolio manager said. When asked about future plans, Reid said, “There’s an ambitious programme of 5GW of offshore wind which has been/should be tendered in recent months. We’d be keen to play a role in that subsector as well.”
Taiwan power generation from 2002 to 2017
Source: Taiwan Bureau of Energy
Solar projects to get boost from UAE’s $163b renewables blueprint With the United Arab Emirates (UAE) moving to implement its $163b (AED600b) renewable energy footprint, the contribution of clean energy to the country’s total energy mix is expected to rise from 25% to 50%. With an expected annual growth of 6%, the energy blueprint is expected to save up to $190.5b whilst still meeting the country’s energy requirements. The goal is to have an energy mix made up of 44% clean energy, 38% gas, 12% clean coal and 6% nuclear. “Our new energy plan balances supply and demand, and takes into consideration our international commitments in terms of the environment. It also seeks to ensure a conducive economic environment for growth across sectors,” UAE prime minister and vice president Sheikh Mohammed bin Rashid Al Maktoum said. The energy plan will be implemented in three phases with the first phase focused on the transition to energy consumption and stabilised energy sources. The second phase will focus on solutions for transportation, whilst the third phase will focus 10 ASIAN POWER
on R&D initiatives for sustainable energy solutions. MEA Annual PV Demand, 2014 - 2023E Green Tech Media forecasts that solar photovoltaic (PV) systems in the Middle East and Africa (MEA) are expected to take off in 2019-2020 on the back of high-profile projects in the UAE, Egypt and Morocco. MEA is set to install 3.6 GW of PV in 2018 with demand expected to spike to 20 GW by 2020. “The MEA region has a 12.3 GW utility-scale pipeline under contract or construction, plus ~21 Source: GTM Research report GW of pre-contract projects,” said Benjamin Attia, analyst at GTM Research. Post-2020, the region Gulf countries’ renewable targets will mostly see slower growth to 2023 as industry learning and regulatory adaptation catch up. Against this rosy growth forecast, Sheikh Mohammed hopes that other GCC member countries will soon follow. “The Gulf countries are similar in their economic structure, and we hope that we will one day have a unified GCC energy strategy in order to ensure sustainable growth for our people and global influence for our Source: Irena, News, A.T. Kearney economies,” he said.
REFRESHING LIFE WITH GREEN ENERGY China Resources Power Holdings Co.,Ltd. (CR Power) was founded in August 2001. The Company is among the most efficient and profitable integrated energy companies in China. It also acts as a flagship company listed in Hong Kong for China Resources Holdings Co.,Ltd.(CRC),which is a Fortune 500 company. Its business primarily covers thermal power, wind power, hydropower, photovoltaic power generation and distributed energy.
CR Power was listed on the Main Board of the Hong Kong Stock Exchange on November 12,2003 (stock code: 0836.HK). In March 2004, CR Power was added to the Hang Seng Composite Industry Index (Utilities) and the Hang Seng China-Affiliated Corporations Index. In May 2005, CR Power was included into the Morgan Stanley Capital International (MSCI) China Index. On June 8, 2009, the Company formally became one of the constituent stocks of the Hang Seng Index (Blue-chip stock).
As at the end of 2017, CR Power’s total assets amounted to HK$220.972 billion and its attributable operational generation capacity amounted to approximately 41,620 MW. It covers 28 provinces, municipalities and autonomous regions. For the eleventh consecutive year, CR Power was named in the Platt’s Top 250 Global Energy Companies and listed in Forbes Global 2,000, ranking 71st and 775th respectively. Since its establishment, CR Power has been a strategy-driven enterprise, and saw a fast and solid development in the past decade due to its clear strategy and efficient execution. In the next five years, CR Power is going to focus on green energy development, greatly enhance the mix of clean energy, develop highquality thermal power, optimize coal assets, and actively tap into the electricity retail business. CR Power is also searching for opportunities in overseas energy markets and cultivating new profit growth opportunities by extending its value chain. CR Power looks forward to working with stakeholders hand-in-hand and implementing the responsibility, as well as pursuing of “Refreshing Life with Green Energy”, so as to establish CR Power as an excellent and sustainable international energy company.
Website: www.cr-power.com
The ASEAN region has a huge potential in solar energy due to its spread across the equator. BGRIM recognises this opportunity and has already invested in a number of solar projects in the region, including ASEANâ&#x20AC;&#x2122;s largest solar power plant, which has an installed capacity of 420MW, as well as another large-scale 257MW solar plant, both in Vietnam.
Preeyanart Soontornwata CEO B.Grimm Power
CEO INTERVIEW
B.Grimm Power builds Asean’s biggest solar farm CEO Preeyanart Soontornwata targets to grow the company’s 1.9GW portfolio in the Asean through fresh investments in two solar plants in Vietnam with a total capacity of 677MW, making up the largest solar farm in the region.
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n an exclusive interview withAsian Power, B.Grimm Power CEO Preeyanart Soontornwata talked about how the company gears up to develop the largest solar project in the Asean region. The company has started investing in two solar plants in Vietnam, which have a total installed capacity of 677MW. B.Grimm Power is one of the offshoots of the 140-year-old Thailand conglomerate B.Grimm Group that started off in 1993 as the result of a couple of an investment foray into the country’s private power sector. The company was able to accumulate a total of 1.9GW in installed capacity across 27 power plants. Soontornwata shares how the company, in order to drive growth, holds the majority controlling stake in its investments, forms relational partnerships with communities, and expands its in-house expert base. She gives updates after B.Grimm Power’s $305.9m initial public offering (IPO) in 2017. She also thinks there are a lot in store for the company’s expansion and planned investments worth over THB10b, but regulatory roadblocks remain as challenges to growth. What strategies have you employed to drive B.Grimm Power to success over the years? What is the company up to this year? B.Grimm Power PCL (BGRIM) is part of B.Grimm Group, which has a 140-year history in Thailand. BGRIM has always been recognised by the market as a “real power developer,” with a high standard of quality and service. With a strategy of acquiring the major controlling stake in every power plant project, we are able to utilise our own in-house experts and professionals to comprehensively develop projects and manage operations with the best in class technology and highest efficiency, select the best EPC contractors and obtain the most competitive financing terms. As a result, we create “quality growth” from both technical and financial assessments, and continuous improvements that lead to profit maximisation and comparatively high Equity Internal Rate of Return above our peers. For BGRIM’s overseas ventures, the key success factor, besides our own highly experienced professionals with proven track records, is in our selection of “credible strategic local partners” who possess the expertise and experience in the business and local community relations, such as our strategic partners in the Lao PDR, Vietnam, and Cambodia. Lastly, BGRIM continues to “improve our capital structure and financing cost” by tapping the best capital markets and exploring innovative financial instruments, such as the Infrastructure Fund. Moreover, BGRIM plans to issue THB debentures amounting up to THB 10,000-14,000 million this year for the refinancing of existing corporate and project loans and debentures, as well as funding of new investments. How do you plan to developAsean’s largest solar project and what is your outlook on solar power in the region? Post COP21, every government has been trying to encourage investments in the renewable energy sector by upgrading their policy frameworks. The ASEAN region has a huge potential in solar energy due to its spread across the equator. IRENA estimates the power contribution by Solar PV generation to each 54.7GW by 2025, from 3.5GW in 2016. BGRIM recognises this opportunity and has already invested in a number of solar projects in the region, including ASEAN’s largest solar power plant, which has an installed capacity of 420MW, as well as another large-scale 257MW solar plant, both in Vietnam. The two solar power projects raise our international investment proportion from 5% to 26%, which is in line with
our strategy for long-term sustainable growth of increasing investment in international renewable projects. How has the company transformed since its initial public offering (IPO)? We had a successful IPO on July 19, 2017, which attracted overwhelming response from both domestic and international institutional and retail investors. The proceeds are being utilised through funding our success as promised to our shareholders. We have used the IPO proceeds to repay loans and improved our net debt-to-equity ratio from 4.1 times to 1.5 times, which is a suitable baseline for our future growth and further development of new and existing power plant projects. Furthermore, the lower net debt-to-equity ratio has earned BGRIM a desirable credit rating of “A” with “Stable” outlook by TRIS Rating, which would enable us to manage our funding costs more effectively. In the past 25 years, what are your company’s milestones? In the past seven years, BGRIM has successfully developed 27 power plants, all of which were completed according to the scheduled commercial operation date (COD) specified by the power purchase agreement, and within the budgetary framework agreed with the lending banks. Currently, we have a total operating installed capacity of 1,900MW, or 1,100MW in equity capacity, and we aim to maintain a strong growth by continuously investing in new power projects. BGRIM has already secured the capacity to construct and develop new power projects between 2018 and 2022 to achieve an installed capacity of 3,200MW, comprising 70% combined cycle cogeneration power plants and 30% renewable power plants. What challenges has the company faced in terms of supplying power to Thailand and the rest of Asia? The opportunity for power project investment in Thailand is significantly dependent on the Thai Power Development Plan, which is being revised by the Ministry of Energy and expected to be announced within this year or early next year. Similarly, one of the key challenges in supplying power in the international market is the government’s policy of each country, as the regulatory framework must justify the commercial aspects and offer a reasonable tariff for a project to be feasible. Furthermore, the planning for potential project location with grid availability and suitable load factor in order to obtain the power purchase agreement and/or concession agreement is also an important factor to consider. What are your ambitions for Asia and what do you think are the key success factors to achieve these? BGRIM’s ambition is to expand our business internationally to achieve an overseas installed capacity of 30% of our total installed capacity by 2022. For short-term strategy, we focus on renewable projects in CLMV, who have well-defined and clearly established power policies. For long-term strategy, we aim to implement our SPP concept in neighboring countries who are interested in attracting foreign investments, such as in Cambodia, where we have already initiated investment and constructed the distribution network for an industrial estate. As mentioned above, our key success factor for international investment is to engage “credible strategic local partners” who possess the expertise and experience in the business and local community relations. ASIAN POWER 13
Country report 1: JAPAN
Japan is trying to reduce the share of gas power in the energy mix from 42% over 2017 to 27% by 2030
Will renewables stop Japan’s nuke restart? Forecasted failures to meet ambitious nuclear targets leave Japan looking to renewables for long-term relief.
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hen the government announced that it targets nuclear to make up 20-22% of the energy mix by 2030, scepticism flooded the news. The current nuclear share of a meagre 4% coupled with the local political opposition, legal challenges, and regulatory issues made the target seem overly ambitious, especially as energy utilities prefer scrapping old reactors over paying higher costs to meet safety standards post-Fukushima. In 10 years, Japan could remain heavily reliant on natural gas-fired power as it struggles to achieve a full-on nuclear restart. Due to the country’s reliance on natural gas imports for the longest time Transition of electricity price (Yen/kWh)
Source: Japan Ministry of Economy, Trade, and Industry
14 ASIAN POWER
Due to the country’s reliance on natural gas imports, electricity prices have soared to as high as 30% greater than pre-Fukushima prices.
since the meltdown, electricity prices have soared to as high as 30% greater than preFukushima prices. Electricity prices have stabilised for a while, as prices for natural gas imports also consistently fell. According to BMI research, limited growth in coal-fired power generation will make it difficult for the country to reduce the share of gas power in the energy mix from 42% over 2017 to 27% by 2030. New coal builds in the country have been facing opposition as Japanese carbon emission reduction efforts have intensified. Despite calls to become more environment-friendly in power generation, the targets for nuclear and gas made it clear that there is little room for renewable energy in the generation mix. The current target of 24% by 2030 seems plausible, as analysts expect the share to reach close to 23% by 2027. In the long-term, renewable energy just might save the day for Japan. “We currently expect Japan to exceed its 2030 targets for both solar and biomass contribution to power generation by 2027 as the substantial feed-in-tariff project backlog supports a continued near-term capacity growth surge in both sectors. Should nuclear restarts underperform, we believe it likely that Japan will turn to renewable energy to diversify away from its excessive reliance on imported natural
gas and coal,” BMI Research added. Over the last few years since the Fukushima disaster, only eight nuclear reactors have restarted. Tarak Shah, energy policy consultant, Sasakawa Peace Foundation USA, said that the discussion around the restart of more reactors has been slow as the local opposition is active even after plants have been upgraded and have passed safety reviews. As a result of this and plenty of other challenges in the nuclear restart, Shah estimates that the nuclear share by 2030 would only amount to a number close to 10%. Nuke headwinds “Considering the life, location, technology and ownership of the existing nuclear plants, we expect around 6GW additional growth that will increase the aggregate capacity to 15GW,” said Dr. Bikal Pokharel, research director, Wood Mackenzie. The country’s nuclear restart has made some progress over the course of 2018, as four additional reactors were successfully restarted at the Genkai and Ohi nuclear power plants. This brings the total number of online nuclear reactors to eight, after the suspension of Ikata 3’s operation in December 2017. Once Takahama 4, and Sendai 1 and 2 are powered up and added to the full output from Genkai and Ohi, the nuclear share of
Country report 1: JAPAN Energy mix target in 2030
Tarak Shah
Bikal Pokharel
Source: Japan Ministry of Economy, Trade, and Industry
the country would grow to 7% over 2019, a long way from the 2030 target. “Stringent security requirements, active seismic faults, legal battles, volcano eruption concerns in addition to popular opposition are key obstacles blocking nuclear restarts. Our downbeat nuclear restarts outlook is also predicated on the risks facing nuclear reactors that are currently online. The Ohi facility has faced a string of requests for court injunctions, which represents a risk to its future operations. We note that Ohi neighbours the Takahama facility, which over 2016/17 had to suspend operations due to a court injunction,” Shah added. Operations in the Genkai and Sendai facilities are also in danger of their respective court’s scrutiny, as they are close to active volcanoes, Mt. Aso and Mt. Sakurajima, respectively. Hiroshima’s High Court has also suspended Ikata 3 due to concerns over the its ability to withstand large-scale eruptions. Analysts emphasise that the downside risks of the government’s support for the nuclear restart warrant a continued and even cautious outlook. Slow, but steady The Institute of Energy Economics in Japan reported that whilst natural gas remains the dominant player in Japan’s energy mix, supply has reached its lowest level since the Great East Japan Earthquake, and for the first time declined in three consecutive years. According to IEE’s report, the shift from oil and natural gas to nuclear and renewable energy continues. Gas capacity additions are driven by utilities’ aspirations to be cost competitive by cutting generation costs, Pokharel noted. “This does not favour gas plant growth as the cost of generation of gas plants are relative higher than coal, renewables and nuclear. Flat power demand forecast, increasing role of renewables, nuclear restarts, and planned coal capacity additions do not incentivise
investing in gas projects,” he said. Meanwhile, progress has been made in the comprehensive energy market front. Analysts at IEE said the full liberalisation of the retail electricity market in 2016 will take the next step in 2020 when traditional monopoly players have to compete in the marketplace as they become legally required to split their operations and separate power generation, transmission, and marketing units into independent entities. Meanwhile, Japan’s energy policies are undergoing intensive review, despite no changes being anticipated for the 2030 power source mix. Shah said that the whilst this sets aside complex political questions around nuclear power, this will slow the energy transition in Japan, leaving the country behind China and India, which are both making huge strides in the energy transition. “Consumers now have choices in the electricity marketplace, which didn’t exist as recently as two years ago. As of May 2018, over 7.7 million Japanese households have switched electricity suppliers from incumbent providers to new entrants in the power market, representing nearly 15% of the market. If electricity market reforms continue as they are currently scheduled and the power monopolies are fully dismantled in 2020, more competition, lower prices, and better energy outcomes will ensue,” Shah said. The case for renewables Power companies such as the Tokyo Electric Power Company (TEPCO) have set their own renewables targets amidst calls to lower carbon emissions. TEPCO set its target at 6-7 GW of total development scale for the company’s domestic and international renewable energy business, to achieve a profit of about JPY100b yen as it fulfils its responsibility post-Fukushima. “We will expand globally our business in order to make renewable energy our
Masahiro Sugimura
main power source. To achieve this goal, we will establish the value chain in Japan from technical development, site development, design, construction and operation & management. Wind power is predicted to account for approximately 70% of the total development scale for our renewable energy business. Especially, offshore wind is expected to make extra benefit other than power generation by structuring value chain,” said Masahiro Sugimura, deputy manager, global communications group, TEPCO. The country’s greenhouse gas emissions spiked to the highest levels after the earthquake, but have declined amidst a reduction in energy demand, some substitution of oil power generation for natural gas, and the rapid acceleration of renewable energy through a Feed-inTariff system that subsidises renewables development. Facilities under construction and expected to start operation by the end of FY2019 are expected to reach 74GW combined with existing ones, and including 43.6GW of non-residential solar PV. Power generation in the renewables front will expand to 135.1 TWh in FY2019, equivalent to 13% of the country’s total generation. The IEE added that out of 105GW approved, 25GW is assumed to be expired capacities or capacities unlikely to start operation. “The cumulative amount of consumer burden for the entire purchase period will reach JPY50t, equivalent to a rise in electricity prices of JPY2,900/MWh 12% for the residential and 17% for the industry sector,” IEE analysts said. “Even as Japan’s energy future is beginning to improve following the Fukushima disaster, factors within Japan’s control are creating an uneven, slow, and idiosyncratic transition to lower carbon, lower cost energy resources. At the same time, more realism needs to be incorporated into Japan’s energy policies. Over 40 new coal power projects remain in planning throughout Japan, making this the largest planned investment in coal power in the developed world,” Shah said.
Expansion of renewable energy facilities
Source: Japan Ministry of Economy, Trade, and Industry ASIAN POWER 15
Country report 2: singapore
Households will now be able to buy electricity from their chosen retailer
Singapore revs up renewables push amidst solar and carbon tax uncertainties
The city-state has trialed the Open Electricity Market and announced a carbon tax, but operational doubts persist.
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hen Singapore held the soft launch of the Open Electricity Market in Jurong, it enabled households and firms to buy electricity from their chosen retailer, and in a way represented the promising direction the country was taking in renewables as the initiative is expected to bolster solar power developers that can now reach a wider base of consumers to purchase their green electricity. OEM is expected to be rolled out to the rest of the country from the Q4 of 2018, but programme implementation has seen its share of challenges. In April, Soh Sai Bor, assistant chief executive of the Singapore Energy Market Authority’s economic regulation division, said the agency has banned door-to-door sales or marketing activities at or near residential premises in order to protect consumers from aggressive marketing tactics. “We will not hesitate to act against retailers if they engage in dishonest marketing practices,” he said, in response to a public letter claiming the EMA had adopted a “hands-off approach” towards the OEM as retailers begin to jockey for a slice of the electricity market. Retailers pull marketing gimmicks “Some retailers have resorted to gimmicks, like free electricity and cash rebates. This may not benefit customers in the long run, and serve to confuse and encourage wasteful habits. In addition, the retailer who gets the most business may not be the cheapest or the most eco-friendly; just the one with the most marketing savvy,” the public letter read. The OEM hiccups—when taken together with what analysts have cited as larger uncertainties surrounding the country’s focus on large-scale solar systems despite the lack of physical space and the long-term impact of the looming carbon tax scheme—serve 16 ASIAN POWER
After 2020, the pace of installation is expected to be even faster; given the target to reach 1GWp capacity beyond 2020.
to illustrate Singapore’s growing pains in its drive to become a renewables leader in Southeast Asia. “With the OEM to be implemented across Singapore by the end of this year, solar power developers will be able to tap the residential consumer market to offer green electricity. After 2020, the pace of installation is expected to be even faster; given the target to reach 1GWp capacity ‘beyond 2020,’” said Gautam Jindal, research associate at Energy Studies Institute at the National University of Singapore. The OEM is one of the key projects meant to propel solar power development in Singapore and enable the country to meet its target of 350MW installed capacity, and it has a lot more ground to cover. “Singapore has two years remaining to reach its target,” said Jindal. “As of the first quarter of 2018, less than half of the target has been accomplished.” SolarNova programme However, Jindal noted that the SolarNova programme has already awarded three tenders for a combined 190MWp PV capacity, and will come out with a fourth tender in 2019. The third tender was awarded in June to Sembcorp Solar Singapore, a subsidiary of Sembcorp Industries, which entails building, owning, operating and maintaining rooftop solar systems across 848 HDB blocks and 27 government sites. The project involves a total capacity of 50MWp and covers blocks in the West Coast and Choa Chu Kang town councils. The Singapore Housing and Development Board, which runs the programme with the Singapore Economic Development Board, said the tender was also the largest so far under the SolarNova programme. Sembcorp Solar Singapore expects the construction of the rooftop solar systems to start in the third
Country report 2: Singapore
Are Singapore’s energy targets enough for the city?
quarter of 2018 and aims to complete it by Q2 of 2020. As of the first quarter of 2018, the number of grid-connected solar PV installations in the country stood at 2,155, almost double from 1,138 in the year-ago period, EMA data showed. Of these, 734 or one-third were residential installations, up from 374 in the prior year, and the rest were non-residential. Still, Zhi Xin Chong, associate director at PGCR Research, IHS Markit, reckons Singapore’s ability to deploy large-scale solar systems will be constrained by the lack of space. “I think the concept of Singapore moving largely to renewables is wishful thinking. But Singapore can contribute to other parts of the renewable ecosystem.” Chong said Singapore is the financial hub for Asia and renewable energy developments in the region requiring capital raising, legal structuring, urban planning, efficient management of utility infrastructure, all of which are expertise that can be found in Singapore. “Whilst we are unable to physically develop renewables in a large way in Singapore, we can assist in the developments in the region,” he noted. In July, Singapore’s Minister for the Environment and Water Resources Masagos Zulkifli announced that the country would launch a Climate Action Package, which aims to develop capacity in the 10-member Association of Southeast Asian Nations. The capacity-building programme will cover disaster risk reduction, climate science, climate finance, flood management, and longterm mitigation strategies. Sufficient emissions target? Singapore’s level of commitment to reduce emissions has also come under scrutiny, even as some analysts have argued that it remains appropriate given the country’s geographical constraints and integrated industries. Earlier in April, The Economist Intelligence Unit said that Singapore is “well placed” to reach its commitment under the Paris Accord to lower its greenhouse gas emissions by 36% per unit of GDP by 2030 compared with the 2005 level as well as stabilise them in absolute terms by around that year. The assessment cited long-term plans to promote efficient energy use and the passage of a Carbon Pricing Bill, the latter likely to “go a long way” towards creating industrial incentives in clean energy. On the other hand, the Climate Action Tracker—a consortium of research organisations tracking climate change action—has criticised Singapore’s commitment to lower emissions as “highly insufficient” given the country’s high economic capacity. “Whilst it has considerably expanded its renewable energy capacity, Singapore’s main focus for climate mitigation is now on energy efficiency programmes. However, this will not compensate for the increasing energy demand from the industry and buildings sectors, which will result in rising emissions,” said CAT, expecting its reduction target to lead to emissions in 2030 rising 123% above 1994 levels.
Gautam Jindal
Zhi Xin Chong
In a press query, the National Climate Change Secretariat (NCCS) of the Prime Minister’s Office (PMO) noted that CAT’s methodology on assessing the sufficiency of a country’s climate targets is largely based on various indicators relating to historical emissions, capabilities and development status. “For Singapore, in addition to these factors, our climate targets need to take into account our challenges as a small city state with limited access to alternative energy. We are a low-lying city-state of around 720 km² with no natural resources. We have limited alternative energy options such as geothermal, wind or hydropower. Where feasible, we have taken various steps to reduce emissions from energy production,” it responded. NCCS noted that Singapore now generates over 95% of electricity from natural gas, up from 26% in 2001. “These early policy decisions to switch to natural gas, the cleanest form of fossil fuel, have led to a 4 MT abatement in greenhouse gas emissions. We also price energy at market rates and do not have fossil fuel subsidies, so as to allow market prices to drive energy efficiency,” it added. Jindal concurred and said that Singapore’s targets for emissions and renewables are “sufficient given its national circumstances,” noting the country’s shift to natural gas, the cleanest possible fossil fuel, and waste incineration. “Singapore has limited technical potential for most renewable energy sources and solar PV is constrained by land scarcity and intermittency concerns,” he said, adding that the country’s main industries, such as petrochemicals and pharmaceuticals, are highly integrated. “It’s difficult to introduce energy efficiency measures that may alter tried and tested processes.” Fulfilling a pledge The NCCS has also indicated that Singapore, in order to meet its targets, has progressively rolled out various measures aimed at reducing emissions. Firstly, it enhanced its Energy Conservation Act 2017 for three reasons, “(a) strengthen the measurement and reporting requirements for greenhouse gas emissions; (b) require companies to undertake regular energy efficiency opportunity assessments; and (c) introduce minimum energy performance standards for common industrial equipment and systems,” it said. It has also announced an economy-wide carbon tax without exemption from 2019 to incentivise emissions reductions and adoption of low-carbon technologies. “The carbon tax will apply to facilities emitting 25ktCO2e or more in greenhouse gas emissions a year, across all sectors without exemptions. This is expected to cover around 80% of Singapore’s emissions,” it added. Moreover, the tax will be reviewed by 2023, with an intention of increasing it S$10-15/tCO2e ($7.4-11) by 2030. “In doing so, we will consider international developments, the progress of our emissions mitigation efforts, and our economic competitiveness. The implementation of carbon tax will help to accelerate innovation and energy efficiency, shifting our economy and
Market share for electricity generation in Singapore
Source: Energy Market Authority, Singapore ASIAN POWER 17
Country report 2: singapore
Singapore encourages innovation through floating PV systems
society towards a sustainable, low-carbon future,” NCCS said. Aside from the carbon tax, Singapore is also aiming to improve the energy efficiency of its buildings through the Green Mark Scheme which mandates a minimum level of energy efficiency for new buildings and existing buildings undergoing major retrofitting works. “We are also investing in green building technologies such as more efficient air-conditioning, solar deployment and smart energy management systems. Our aspiration is to have positive energy low rise buildings, zero energy medium-rise buildings, and super-low energy high-rise buildings for the Tropics,” it said. Green marks, green mobility Its aim is to achieve Green Mark standards for 80% of its buildings by 2030, compared to more than one-third now. Since 2013, commercial buildings, healthcare facilities, and educational institutions have been required to submit energyconsumption data annually. Starting this year, information are publicly disclosed to encourage buildings to consciously adopt measures to reduce their energy footprint, NCCS noted. Singapore has also been active in its green mobility options, espcially in the areas of public transport, walking, and cycling, by improving and promoting public transport, managing the use of vehicles, and encouraging fuel and carbon efficiency for vehicles. A 360km rail network, 120 trains, and seven transport hubs are expected to boost the city’s energy needs. “We have a comprehensive suite of measures which collectively aim to increase the use of public transport during morning peak hours from 67% in 2016 to 75% by 2030. By 2050, the aim is to further increase this share to 85%,” NCCS said. Research investments Singapore is also investing in the research and development focused on urban solutions and sustainability sector, which includes supporting the piloting, test-bedding, and accelerating the adoption of new technologies. “Although the scale of solar energy deployment in Singapore is limited by space constraints and issues with intermittency, we are making progress in having solar panels on more HDB rooftops, and increasing our solar PV deployment to 350MWp by 2020, and further to 1GWp beyond 2020,” it added. Singapore is conducting engineering and environmental studies into the deployment of floating solar systems to be extended to other reservoirs. “To push boundaries beyond the reservoirs, we are also studying the development of offshore solar panels that can withstand harsher conditions in the sea, such as stronger winds and wave action,” NCCS said. The carbon tax was then announced in February, when the Singapore government said that heavy emitters in the country will be charged S$5 per tonne of greenhouse gas emissions under its carbon tax scheme to be implemented in 2019, reduced 18 ASIAN POWER
The carbon tax will push businesses to take measures to reduce carbon emissions, noting that large emitters account for about 80% of Singapore’s emissions.
from the previously announced range of between S$10 to S$20 to allow companies more time to adjust and initiate energy efficiency projects. Facilities that produce more than 25,000 tonnes of greenhouse gas emissions or more annually, which is equivalent of emissions produced by the annual electricity consumption of 12,500 HDB four-room households, will have to pay the carbon tax. “With Singapore set to impose a carbon tax of S$5 per tonne of CO2 emissions on large polluters including power generators, it will be interesting to see how the situation unfolds,” said Jindal. “All but one of the generation companies made losses in 2017; and whilst the carbon tax is meant to be passed down to the consumer, generators and their retail arms may look to absorb the costs in order to maintain their market share.” Finance Minister Heng Swee Keat has argued that the carbon tax will push businesses to take measures to reduce carbon emissions, noting that large emitters account for about 80% of Singapore’s emissions. The government will provide support to help enhance energy efficiency and reduce emissions and is prepared to spend over the expected S$1b in carbon tax revenue in the first five years to support energy efficiency projects. Is the tax a burden? Large emitters have pushed back at the carbon tax, viewing it as an additional burden that would lower their global competitiveness. Some firms have also asked for the carbon tax to be based on emissions performance benchmarks rather than a flat rate, claiming that it will result in a fairer system. Despite these concerns, Heng has insisted that a creditsbased carbon tax system is the “economically efficient way to maintain a transparent, fair and consistent carbon price across the economy to incentivise emissions reduction.” The Singapore government said that by 2023, the carbon tax rate will be reviewed and is envisioned to be raised to S$10 and S$15 per tonne by 2030. “Singapore is trying to contribute and do its part to reduce carbon emissions. It has established the NCCS that has been pushing a number of initiatives, most recently, the proposed carbon price. Singapore’s renewable targets are aspirational but there has also been a drive from the government to realise this. Such as HDB deploying solar systems on its rooftops or PUB piloting a floating solar farm in Tengah reservoir,” said Chong. In October 2016, the Singapore government launched the floating Tengah test bed, the world’s largest. Then in April, PUB called a tender to conduct engineering studies for the deployment of a 1MWp floating solar PV system at Lower Seletar Reservoir and a 1.5MWp floating solar PV system at Bedok Reservoir. Both systems will help power the national water agency’s operations and are estimated to cut down its carbon footprint by about 1.3kt CO2 annually, similar to removing about 270 cars off the road per year.
Market share for electricity retail in Singapore
Source: Energy Market Authority, Singapore
Analysis 1: india’s coal plans
The coal-fired pre-constructed project pipeline shrunk by a quarter in the last six months
Why India’s coal plant cancellations are moving at a rate faster than expected
Coal lenders still struggle to resolve $40b of stranded assets, but some developers have already abandoned their projects.
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he latest data from the Global Coal Plant Tracker (GCPT) shows that India’s coal-fired pre-construction project pipeline has shrunk by a quarter, that is 24GW in the last six months alone. India’s thermal power giant NTPC Ltd has reportedly shelved 10.5GW of its planned coal-fired power projects yearto-date. Project cancellations are coming faster than expected as financial viability remains dubious and India increases its low-cost renewable installations. India’s National Electricity Plan (NEP) 2018 assumes 94GW of new coal-fired capacity will be added between 2017-2018 India’s coal-fired power project status
Source: Global Coal Plant Tracker (GCPT) July 2018
20 ASIAN POWER
India’s thermal power giant NTPC Ltd has reportedly shelved 10.5GW of its planned coalfired power projects yearto-date.
and 2026-2027. With the renewables programme accelerating, IEEFA views this as too high an estimate if UDAY is successful in bringing AT&C losses down. Further, IEEFA believes that many of these project proposals, based on outdated subcritical technology, will become stranded assets even before they are built, resulting in a waste of land, capital, and political effort. The coal-fired power sector also accounts for a significant share of nonperforming assets (NPAs) that continue to trouble the Indian banking sector. The government estimates there are about 40.1GW of stranded coal-fired power projects, of which 15.7GW are not even commissioned. Financial stress on coal contracts Earlier this year, the Parliamentary Standing Committee on Energy report highlighted issues responsible for the financial stress in India’s coal-fired sector. An absence of coal supply contracts due to the cancellation of assigned coal blocks, poor locations distant from coal sources, use of outdated imported equipment, lack of long-term power purchase agreements (PPAs) and delays in land acquisition
resulting in cost overruns were some of the key issues identified by the committee. Some of these projects had signed PPAs at aggressively low tariffs that make debt servicing difficult. In the meantime, variable cost related to coal-fired generation has gone up due to increases in coal prices (particularly for coastal plants suffering from a doubling in import coal prices) as well as the cost of freight charges for coal transportation. As per India’s Central Electricity Authority (CEA) estimates, the tariff for a new emission controls compliant pit-head supercritical coal-fired power plant should be Rs4.39/kWh (for a PLF of 60%). With super competitive renewable energy PPAs with zero indexation now regularly priced in the Rs2.50-3.00/kWh range, new coal power plants are struggling for viability across India. India’s coal-fired power sector woes reflect the combination of excessive financial leverage, operational inefficiencies and competition arising from accelerated deflation in renewable energy tariffs, all of which make investors sceptical of the sector. India’s financial sector is ill-equipped to force promoters to write-off their equity investment in
Analysis 1: india’s coal plans India declining thermal capacity share – NEP 2018 additions & retirements
Source: IEEFA
stranded assets, resulting in delays and ultimately bigger losses to debt providers, given interest expense continues to accrue on long stalled projects. Coal developers drop plans Whilst coal sector lenders are trying to restructure and resolve some $40b in stranded assets, an accelerating number of developers are walking away from their planned but now long stranded coal power plans. NTPC Ltd has displayed prudence by deciding to turn away from a growing number of stalled coal-fired power project proposals that have not moved in years in the wake of record low coal utilisation rates and rising demand for cheaper renewables. In June 2018, NTPC decided to drop its 4GW greenfield coal-fired Pudimadaka Ultra Mega Power Project. The plant was planned in 2011 with a PPA signed with the government of Andhra Pradesh. The project over the years had several failed attempts to organise a domestic coal linkage and even was denied a captive port to handle imported coal by the Ministry of Defence when it pursued that option. NTPC confirmed it has no intention to pursue two other planned coal power plant developments – the 1,980 MW Nabinagar-2 and 1,600 MW Katwa thermal power generating units in Bihar and West Bengal, respectively. The plants originally had arranged PPAs with multiple states including West Bengal, Jharkhand, Odisha, Sikkim and Bihar. Odisha’s energy minister had requested to cancel the PPA with Nabinagar Plant as the lower cost of renewables and the move to power surplus meant demand growth was insufficient to justify these expansions. NTPC in February 2018 shelved the 1,600 MW expansion of Kaniha stage 3 Unit 1&2 in Talcher, Odisha on the back of surplus generation capacity in the state and the shift to renewable generation across the country. GCPT also put NTPC’s 1,320 MW Simhadri power
plant in Andhra Pradesh in the shelved category this year, as the project has not received any required permits. This is not to say NTPC is abandoning coal power generation any time soon. NTPC has 47GW of existing coal generation and it has been selectively acquiring equity stakes in financially distressed state coal power plants such as the Nabinagar Power Generating Company and Kanti Bijlee Utpadan Nigam Limited in Bihar in June 2018. NTPC started 2017-2018 with a development pipeline of 25GW of new coal plants. Shelving 10.5GW since February 2018 represents a dramatic recognition of the dynamic state of the Indian electricity sector and size of the disruption from renewables. It is not the end of thermal coal, not least given Indian thermal power plants have an average 25-40 year lifespan and the majority were only commissioned in the last decade. Can renewables meet demand? India’s remarkably ambitious renewables investment programme should be sufficient to accommodate almost all the incremental electricity demand growth that will result from 6-8% annual GDP (net of energy efficiency, grid efficiency plus nuclear and hydropower additions). With the National Electricity Plan (NEP) 2018 showing 48GW of planned end of life coal plant closures by 2027-2028, India likely will need some additional coal power to offset those closures. However, this does not mean new coal plants are necessarily needed to fill the gap – the record low coal plant utilisation rates of just 57.4% in 2017/18 provide scope for 20-30% more generation via better utilisation of currently existing assets. Slower than expected electricity demand growth has given states reason to avoid signing long-term PPAs to avoid paying extravagant capacity charges even if the plants are not generating power, particularly in the knowledge that medium term renewable energy tariffs are
GCPT data reports that 573GW of coal-fired power projects in India has been cancelled or shelved between 2010 and June 2018.
likely to be materially lower. The effect of surplus capacity, slowing demand, increased coal input costs and competition with cheaper renewable sources has left coal-fired power project development languishing in India. GCPT data reports that 573GW of coal-fired power projects in India has been cancelled or shelved between 2010 and June 2018. GCPT deems a project as cancelled if there is no development progress on the project for four years and shelved after two years. Projects vanishing from company documents is another sign of companies quietly walking away from the projects. Distressed assets With 39GW already under construction, much of the 63GW in planned capacity in various stages of pre-construction development will simply add to existing surplus capacity, increasing distressed assets. In such a situation, the generation facilities will compete within the coalfired sector and result in sustained suboptimal capacity utilisation rates. As per CEA’s reporting, out of the last five quarters, three quarters have seen net negative additions of coal-fired power capacity as 2.6GW of capacity was retired in this 15-month period. Plant retirements projected in the NEP seem to be coming along as planned. For states without their own in-state coal mining capacity, relying on expensive interstate or imported coal-fired power is increasingly a money losing option that threatens affordable energy security and slows distribution company reforms. NTPC has been judicious in cancelling surplus planned projects and reducing its stranded asset risks. This represents a clear example for investors in terms of a sustainable transition to progressively pivot toward lower cost, lower emissions electricity generation, jettisoning the drag of now surplus, expensive coalfired project proposals that have been stalled for years. From “India’s coal plant cancellations are coming faster than expected” by Tim Buckley and Kashish Shah, energy finance consultants, IEEFA
PLF of thermal generating stations in India (Coal & Lignite)
Source: India Central Electricity Authority ASIAN POWER 21
sector report: GEOTHERMAL
Indonesia’s 330MW Sarulla plant is one of the world’s largest geothermal sources
Asia’s untapped geothermal potential could be key to region’s energy sustainability Landmark projects in Indonesia and the Philippines are paving the way, but investor and regulatory roadblocks remain.
W
hen the third and final unit of the 330MW Sarulla geothermal power plant went online and started operations in May 2018, it marked another milestone in Indonesia’s efforts to move towards a more renewable energy future. The $1.7b project, which will power over 2.1 million Indonesian households, is considered the world’s largest single-contract geothermal power plant in the country. This follows the commercial operations of Sarulla geothermal power plant’s first two units, the SIL and the NIL2, which went
Only 15% of known geothermal reserves are exploited for electricity production, generating roughly just 13GW.
Sarulla geothermal plant financing in 2015
Source: Asian Development Blog
22 ASIAN POWER
online in March and October last year, respectively. All three units of the power plant use energy converters which utilise low-pressure steam to maximise resource exploitation for maximum power output. A few hundred miles north, the Philippines is also making efforts to champion renewable energy as main components of its evolving national energy mix. In January, the country’s Department of Energy has given the green light for the construction and development of a geothermal power plant, considered a project of “national significance”, with at least 100MW capacity to power thousands of households and businesses all over the archipelago. The cases of Indonesia and the Philippines represent much of the untapped potential (and challenges) of harnessing and developing renewable energy sources, particularly geothermal, in the whole of the Asia Pacific region. The two countries have a geothermal energy capacity dilemma not because they don’t have much of it, but because they have trouble turning them into usable energy. World Bank data showed that global geothermal power generation potential is between 70 to 80GW, but
only 15% of known geothermal reserves are exploited for electricity production, generating roughly just 13GW. Asia Pacific, meanwhile, represents 33.3% of the world’s total geothermal installed capacity at 27.53 GW, according to data from the World Energy Council— with a healthy margin for growth and development expected given the region’s untapped potential. Geothermal potential Despite polarising perspectives, some private sector players believe and are banking on this huge potential for geothermal energy in Asia Pacific, for instance, Isaac Angel, CEO of Ormat Technologies, the supplier for the energy converters and designer of the geothermal combined cycle unit of the Sarulla power plant. “Ormat believes Asia is a region with significant untapped geothermal potential, and we expect to use the success at the Sarulla power plant as a stepping stone to additional opportunities,” he said. The need for cleaner and more renewable energy sources is most evident in Asia and the Pacific, considered one of the fastest growing regions in the world for decades. As these economies
sector report: GEOTHERMAL
Daniel Brenden
The Philippines has yet to unlock full geothermal potential
continue to grow, more businesses get established and/or expand operations whilst households see their purchasing power rise. This also means that national demand for power and energy would rise— something that would not be sustainably solved anymore with traditional coal and fossil fuel energy sources, given their detrimental effects to the environment including pollution and carbon emissions. This is where the push for greater utilisation of renewable energy sources come into play. Daniel Brenden, power and renewables analyst for Fitch Solutions, explained that renewable energy sources are crucial in Asia’s sustainable energy future because the technology and the costs enabling these resources are slowly decreasing over the years. However, geothermal energy’s share in the region may remain stagnant partly because of the faster growth of the other sources and the conservative view of some stakeholders on geothermal investments. “We forecast geothermal power to make up 2.9% of total non-hydro renewables power generation in Asia by 2027, a decline from the 4.2% share we forecast for 2018 and from 44% in year 2000,” Brenden said. “This is largely due to the surge in growth in the regional wind and solar power sectors, but also down to the limited growth prospects we see for geothermal through the region.” Indonesia will likely be the key leader when it comes to geothermal capacity additions in the region and globally, according to the analyst. The gradual commissioning of projects in the pipeline will see Indonesia’s geothermal capacity increase to just over 3GW by 2027. Fitch Solutions noted that Indonesia’s project pipeline is expected to expand further as developers capitalise on the country’s substantial geothermal potential. But here is where the problem lies: there isn’t much to show for the region’s large potential for geothermal energy if investors, private sector players,
governments, and the public remain conservative or, at times, sceptical about the gains from harnessing such renewable energy. Experts insisted that the region’s geothermal potential remains very promising as shown in projects popping up in Malaysia and Taiwan, but it will take major breakthroughs to clear the path for large-scale projects in countries like Japan. Brenden highlighted Japan and the Philippines in terms of growth and challengers for geothermal energy as a power source, mentioning that whilst some growth is expected in Japan, there remain obstacles to geothermal development including opposition by onsen (hot bath) owners and environmental issues. “In the Philippines, we also believe that growth will be limited as nearly all the proven reserves have been commercialised, and because most of the unexploited and unproven reserves are located in relatively inaccessible areas, making development difficult and costly,” he explained. Roadblocks to full potential Geothermal energy remains largely a sleeping giant due to roadblocks affecting and coming from various stakeholders. For Michael Barrow, director general of the private sector operations department of the Asian Development Bank, an obstacle for geothermal development is that private players are more exposed to risks that may not be attractive or even feasible for any businesses. He cited Indonesia as an example, explaining that private sector investors in a project are responsible for exploring and maintaining geothermal wells and are, therefore, fully exposed to geothermal risks. This also applies to lenders like ADB, according to Barrow. “This means that, as lenders, we need to pay special attention to geothermal-specific risks on top of the usual construction/operation and maintenance risks for the power plant hardware,” he said. One of these specific risks includes figuring out whether there really is
Michael Barrow
Isaac Angel
a substantial amount of geothermal resource in a specific location or not, which requires drilling test wells that will likely cost tests of millions of dollars. Other risks along the resource stream follow suit, including testing whether exploiting the geothermal resource found in a test well is worthwhile for businesses in terms of cost or not and whether these are sustainable or are able to produce enough energy to cover costs during the duration of the project. Brenden echoes this statement in terms of private sector investors and developers, saying that upfront costs of geothermal and the technical challenges of the drilling process deter renewable energy developers. For instance, initial construction costs can be between half and two-thirds of total costs, with a large component of the upfront capital being spent on exploration studies and drilling. “It is difficult to predict the success rate of the drilling or the sustainability of the site, therefore posing sizeable financial risks to investors,” he said, highlighting the need for governments to make the necessary reforms for risk-sharing, financing, and framework of regulations for geothermal development. “Given these significant risks, developers are unlikely to proceed with projects in countries where access to finance is restricted and an attractive regulatory framework has not been implemented.” Barrow also noted that geothermal project sites tend to be situated in remote areas often within a pristine natural habitat, giving rise to certain opposition from communities within and around potential project sites, environmental groups, and government agencies. “Safeguards due diligence, particularly biodiversity conservation, has been a key focus for all Indonesian geothermal power so far,” he said. Despite these obstacles, both Barrow and Brenden noted that the gains and potential benefits of focussing on the development of renewable energy sources like geothermal in the region can outweigh the short-term costs and risks. Barrow noted that whilst these risks are real and considerable, with geothermal never being an easy power subsector to finance, certain success stories in countries like Indonesia have proven that it can both be profitable and sustainable. “The potential of geothermal to help spur Indonesia’s economic growth in a climate-friendly manner is considerable and makes the extra effort worthwhile,” he said. In a cost perspective, Brenden explained that operational costs are minimal as there are no additional feedstock costs and geothermal resources generate a base-load, highly reliable, low carbon, and indigenous energy supply. ASIAN POWER 23
Analysis 2: ASEAN’s coal bumps
Governments are pausing and even cancelling questionable deals
Warning lights flash for Asean’s coal IPPs Probes like those on PLN’s 600MW Riau 1 IPP signal authorities to pause and rethink bids, but banks are hungry for deals.
T
he complexity of Southeast Asia’s tortured relationship with coal can be difficult to pin down. Usually, the case for coal rests on an expedient growth agenda premised on unproven arguments that coal power is “cheap” and that the guarantees needed to attract foreign investment are a cost-free option. This is a high-risk scenario that is increasingly testing the abilities of the most capable government officials, especially those who are well aware of the long-term financial advantages of deflationary renewables and who shudder at the cost of locking in inflationary long-term FX commitments. The problem for the bureaucrats has been finding the right local examples that make it crystal clear that coal advocates and bankers have loyalty only to their own interests. Thankfully, for observers of power sector policy, July was a month rich in examples of what needs to be fixed and what needs to be stopped in Southeast Asia. These two themes seem destined to shape the work lying ahead for the policymakers, power sector leaders, and investors who will re-shape Southeast Asia’s energy landscape. This is not easy work, however. The new market structures that are needed to create cost-effective economic incentives are emerging, but they must be customised for each country’s market infrastructure. Nevertheless, the obvious first step in Southeast Asia is to stop underpricing fossil fuel risk which is locked into the long-term contracts that support independent power producers (IPPs). What was behind July’s turn of events? We have recent elections in Indonesia and Malaysia to thank for renewed confidence in the importance of addressing persistent corruption and governance problems that have afflicted the power sector for years. And just as government officials are focusing on efforts to clean up the sector, bankers are rushing in the opposite direction to lock in the bounty which results from old-style project finance deal-making. Despite much higher emerging market currency 24 ASIAN POWER
A member of the Indonesian house of representatives was being investigated as part of a bribery case surrounding the proposed coal-fired 600MW Riau 1 IPP.
volatility in the first half of 2018, bankers remain eager to push deals into the market before higher rates and more active policy interventions complicate the sector’s outlook. Tracking the status of Indonesia’s many IPPs is a complicated task made more complex by PLN’s lack of transparency concerning its planning processes, the terms for project awards, and governance considerations related to the finalisation of power purchase agreements (PPAs). Corruption questions on PLN Evidence of this problem emerged in mid-July. Reports in the Indonesian press confirmed that a member of the house of representatives was being investigated by the KPK, Indonesia’s Corruption Eradication Commission, as part of a bribery case surrounding the proposed coal-fired 600MW Riau 1 IPP. Parties involved in the IPP include Singapore-listed Blackgold Natural Resources, PLN subsidiaries Pembangkitan Jawa-Bali (PJB) and PLN Batubara (PLN BB), and China Huadian Engineering Co. The Riau 1 IPP is a mine-mouth facility and was directly awarded to the consortium by PJB without a transparent bidding process. Many mine-mouth IPPs were not included in the planning process initiated at the beginning of the President’s 35,000 MW scheme, and this proposed project appears to have been suddenly added in the 2016 RUPTL through a direct appointment scheme involving PJB. In many ways, the circumstances surrounding the Riau 1 IPP are emblematic of Indonesia’s strategic challenges, due to overreliance on coal IPPs backed by a revolving cast of coal producers who are highly motivated to push speculative projects that will benefit narrow interests. According to press reports, the alleged bribe was paid by Johannes Budisutrisno Kotjo, a shareholder in Blackgold who was also, until the end of June, listed as a member of the company’s key management as a consultant. Mr. Kotjo is a seasoned veteran of the sector, and observers of
Analysis 2: ASEAN’s coal bumps energy industry, are a clear indication of the new government’s commitment to transparent market structures that will support the transition to more cost-effective energy options. A prominent part of this policy shift will be a move to open tenders. According to Minister Yeo, developers should not concentrate on relationship building but focus instead on cost competitiveness. In the future, developers should “not be disappointed if you cannot arrange a one-to-one appointment with the ministry (because) you are still at a level playing field when it comes to anything that we open for tender, and only open tender in the ministry.”
Parties involved in the Riau 1 IPP
Source: PwC
the global mining scene will appreciate the fact that Blackgold’s 2017 annual report proudly notes that Mr. Kotjo “went into his first resources venture together with a major mining player, Robert Friedland...,” who is well known for a string of governance-compromised transactions in emerging markets. Motivations at stake It is also notable that Blackgold had good reason to be highly motivated to secure a stake in the IPP, as it promised to provide demand for low-grade coal which would struggle to find a market outside of Sumatra. According to the company’s disclosures, it currently has estimated reserves of 147 MT of lignite, with another 520 MT listed as resources. The loss-making company is still in start-up phase, with high funding needs. In April 2018, the company disclosed to shareholders that the Riau IPP is crucial to the loss-making company’s future, as “the Consortium is working towards the signing of a Power Purchase Agreement with PLN for the sale of electricity from the Riau-1 project to PLN for a period of 25 to 30 years, alongside with a Coal Sales and Purchase Agreement for the sale of coal from the PT SB Concession to the Riau-1 Project, also for a period of up to 30 years.” What makes this case so significant is the individuals who have been caught up in the KPK investigation. The first target to be named was Eni Maulani Saragih, a Golkar legislator who is deputy chairwoman of House Commission VII, which oversees energy and mineral resources. The investigation has also spread to include Sofyan Basir, the president director of the state-owned monopoly electricity company PLN. As a result, the list of questions about PLN’s questionable planning disciplines , which have produced overcapacity in the key Java-Bali grid, will grow longer as we wait for news about whether PLN will move ahead with the now stalled Riau 1 project and how it plans to manage the equally severe conflicts of interest associated with many of the mine-mouth coal IPPs that have won recent approval. Malaysia kills four contracts Just days before Indonesia’s anti-graft investigators lifted the lid on severe problems with PLN’s IPP programme, Malaysia’s new Energy, Technology, Science, Climate Change and Environment Minister Yeo Bee Yin announced Malaysia is cancelling four new IPP contracts. Minister Yeo was quoted as saying that “For certain reasons, the previous government (under Barisan Nasional) had approved a lot of IPP contracts through direct negotiation (or) direct award to build up the country’s capacity and users need to pay for that capacity… These IPP contracts that were directly awarded to not deserving companies, we are reviewing them, especially those that bring no cost implication to the government.” These comments, delivered in an address to the renewable
Malaysia’s new Energy, Technology, Science, Climate Change and Environment Minister Yeo Bee Yin announced Malaysia is cancelling four new IPP contracts.
Risk pooling? Whilst power sector observers in Indonesia and Malaysia have spent the past few weeks rushing to keep up with new political trends, it has been business as usual for the finance community. One of the banking world’s articles of faith about industrial scale finance is that structured finance products provide special solutions to risk management puzzles that can improve outcomes for everyone—both issuers and investors. Whilst the theoretical promise of clever risk pooling and hedging strategies may be valid, it’s crucial that all the parties have a very clear understanding of what the risks might be and how those risks will create winners and losers over time. As coal power assets begin to be stranded across a range of markets, investors and regulators are rushing to re-assess the way that risk ratings are attached to project loans. This process is relatively advanced in developed markets, but in Southeast Asia, the market signals remain subdued despite the speed of the transition taking place in India and China—and clear evidence of asset stranding. Thanks to Temasek, one of the region’s most respected asset owners, Southeast Asian investors are about to get a pop quiz on carbon risk and risk pooling. In late July, Clifford Capital, which is 40.5% owned by Temasek, announced that they were offering institutional investors a novel opportunity to invest in a pool of project finance loans. The US$458 mn collateralised loan issue is backed by 37 different loans covering 30 projects in 16 countries, with exposure to Australia, Indonesia, and Vietnam accounting for 47.7% of the total exposure. Questions for Temasek Oil and gas projects would account for 39.5% of the pool, whilst 28.4% would be from conventional power projects—presumably coal and gas. Roughly three-quarters of the projects are currently in operation, and 38% of the obligations have the benefit of credit enhancement from export credit agencies or multilaterals. So far, so good? Traditional logic suggests this would seem to be a straightforward way to create a diversified package of high yielding debt securities for institutional investors who normally lack access to project loans. But think again.
Clifford Capital’s project finance loans sector distribution
Source: Clifford Capital ASIAN POWER 25
Analysis 2: ASEAN’s coal bumps
Regulators see warning signs through landmark cases of energy deals
It’s always instructive to consider who the issuers are and why are they selling. The sellers are Clifford Capital (Temasek), DBS, HSBC, MUFG, SMBC, and Standard Chartered—all of whom have access to the teams of bankers and lawyers needed to evaluate the underlying risks. This suggests that some of the region’s biggest financial sponsors of project financed infrastructure projects may see the balance of risks differently than potential investors who are more distant from the projects and markets. Clearly, they are looking to offload project debt and to reposition their balance sheets. Press reports obligingly suggested that the issuers were eager to “free” bank funds and “recycle” the capital into other infrastructure projects. A little caution may be merited here, however. This outdated explanation may only be relevant to market strategists who have missed out on the cross-currents that are restructuring the infrastructure finance market globally. We see clear indications that power markets are changing in ways that may result in a de-coupling from traditional sovereign guarantee structures, as deflationary renewables undermine return structures for centrally-planned coal assets. There is every reason to believe that these issuers are conscious of these global trends and are therefore looking to reposition their loan portfolios. Indeed, smarter banks and investors like Temasek are under pressure to re-assess their concentration risk exposures to heavily coal exposed markets like Australia, Indonesia, and Vietnam. At the same time, offering up a little non-power debt in order to start paring carbon-risk impacted paper could be a way to discreetly reduce risk before other Southeast Asian investors wake up and the liquidity associated with these exposures becomes worse. US bank takes on advisory For many years, the financing and advisory work for contentious Indonesian IPPs have been done by a closed circle of global and Asian banks. The ranks of banks willing to take on these assignments have begun to thin, however, as concentration risks (see above) and reputational risks have begun to grow. As they have exited the market, a new group of financial advisors and lenders has emerged. Most commonly, these new entrants have tended to be the more risk-tolerant state-owned Chinese banks that will sometimes step up when the engineering, procurement, and construction contractor (EPC) is Chinese. This makes the news that Evercore, a US investment bank, is reported to be the financial advisor to the sponsors of the coal-fired 1,320MW Tanjung Jati A IPP something of a surprise. The project, also known as Jawa 4, has a long and tortured history with multiple stops and starts over the past 20 years. The current project sponsors, YTL Power (with 80%) and Bakrie & BroPower (with 20%) are reported to have completed 26 ASIAN POWER
The project, also known as Jawa 4, has a long and tortured history with multiple stops and starts over the past 20 years.
negotiations with PLN on a PPA in February, and the necessary land acquisition for the plant and associated transmission and distribution links is said to be almost complete. What makes Evercore’s role in this transaction stand out is the seeming conflict between the firm’s aspirations and its risktolerant attitude toward the Indonesian coal IPP market. It seems surprising that Evercore lacks awareness of the controversy attached to large project financings for coal IPPs which will service the over-crowded Java-Bali grid despite a reserve margin in excess of 30%. The same skewed incentives that have resulted in the corruption investigation surrounding the Riau 1 project are just as relevant to the Jawa 4 project. This is arguably a project that PLN does not need. Bakrie’s interests are clear—their coal units will presumably benefit. YTL is an established Malaysian coal power operator, but key family members are well aware of the risk of climate change—a posture which makes this investment seem like a strategic contradiction. What can be done? Evercore prizes its track record for growth as an independent investment bank, and—despite a long advisory track record in the energy sector—it has thus far steered clear of controversy in Asian markets where it has a small footprint. In recent years, the traditional leaders in Asian power advisory work have all spent time devising coal policies and re-assessing their commitments to the coal IPP market. Evercore does not appear to have any similar governance documents and appears to lack board capacity with deep Asian expertise. This raises obvious questions about whether they understand that this advisory role may not result in a financing that investors or the Indonesia public will thank them for. There is still time for Evercore to reconsider this piece of business with help from the firm’s leadership. One might hope that Asia Co-Chairs Stephen CuUnjieng and Keith Magnus could devote a little time to studying the firm’s work for Energy Future Holdings, in order to understand how quickly markets can move toward more cost-effective power solutions, to the detriment of coal power bondholders. This is also a long-term governance issue that new board members Ellen Futter and Sarah Williamson may want to address. Futter, formerly of the JP Morgan board, is well positioned to give the leadership team a tour of the Museum of Natural History’s excellent Gottesman Hall of Planet Earth where she is the President and Evercore Founder and Senior Chairman, Roger Altman, is an Honorary Trustee. Its exhibits provide a clear science-based lesson on how climate change works, and how it can destroy long-term value for asset owners. From “A Bad Month for the Southeast Asian Coal Power Juggernaut” by Melissa Brown, energy finance consultant, Institute for Energy Economics and Financial Analysis
Foreign banks turn the other way around despite regulatory progress
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Analysis 3: offshore wind in asia
Global offshore wind capacity could hit 115GW in 2030
Tech upgrades propel offshore wind as Asia’s coal replacement Asia’s power giants are expected to benefit from technological upgrades and research & development in Europe to partake in the global market worth $20b-$30b.
T
he global renewable electricity sector transformation has gained unprecedented impetus due to accelerated deflation in wind and solar power costs. Classic benefits of technological improvements, innovative financing, low externalities and economies of scale have all come to fruition in the renewable energy sector. Similar momentum is unfolding in the underexplored domain of offshore wind power, likely to grow into a major $2030b annual global market. Offshore wind power offers an opportunity in emerging Asian markets by 2030 to further reduce overreliance on emissions intensive, expensive, inflexible, imported coal-fired electricity. The recent technological development of offshore wind turbines has been dramatic. Offshore wind upgrades The rotor diameter of offshore turbines has jumped from 80 metres to more than 164 metres and average capacity has doubled, climbing from 1-2MW in 2012 to 4-6MW today and still rising. Leading players like Orsted and Siemens are betting on another doubling in size to 10-14MW by 2024. These technological improvements and cross-sector learning from other industrial sectors such as maritime, automotive and shipbuilding have pushed costs down significantly in the past 10 years. Today, offshore wind technology is getting close to matching the cost of 28 ASIAN POWER
BNEF suggests China (2.7GW at the end of 2017) will overtake the UK (currently with 6.8GW) in installed capacity by 2022.
energy from its onshore counterpart, due to its near-limitless size potential, proximity to coastal city load centres, exceptional utilisation rates plus subsea grid technology improvements by world leaders like Prysmian Cables. Bloomberg New Energy Finance (BNEF) projects the offshore wind power market to grow at a compound annual growth rate of 16% to reach a total global capacity of 115GW by 2030, a sixfold increase from 2017. IEEFA notes that this estimate includes North America and Europe, but possibly understates the enormous offshore wind potential of Asian economies. To date, the growth in offshore wind power has been concentrated in Europe, with 84% of the total 18.8GW of global offshore wind capacity installed in Northern Europe. A record 4.3GW of offshore wind power capacity was installed across nine markets in 2017.
Asian countries such as China, India, Japan, South Korea, Taiwan and Vietnam are set to capitalise on Europe’s lead in the coming decade. In fact, BNEF suggests China (2.7GW at the end of 2017) will overtake the UK (currently with 6.8GW) in installed capacity by 2022. China has an aggressive target to install 10 GW of offshore wind by 2020. It remains to be seen if the country can hit that mark, but installations have picked up speed in the past two years. According to GWEC, China’s installed offshore capacity at the end of 2017 totalled 2,788MW. Going forward, Wood Mackenzie’s MAKE consulting unit expects installations to climb steadily through 2030 when China’s total capacity could top 30GW, providing clean power to its major economic hubs, most of which are located along the coast. In August, China’s state owned utility China Three Gorges won clearance to construct the 400MW Yangjiang offshore wind farm off the coast of Guangdong province. It is the third offshore wind farm that the utility will build in the same province. South Korea is not far behind. The country’s goal is to install 18GW of offshore capacity by 2030; of this 4GW is already in the pipeline. As part of this pipeline, in June 2018 the renewable energy investment giant Macquarie Capital was reportedly looking into investing in a 1GW project planned for offshore Pohang with local developer Gyeongbuk. Taiwan and Japan have set targets of 5.5GW and 10GW respectively. India’s ambitious 2027 renewable energy capacity target of 275GW has put the country in a spotlight. It has set an offshore wind power capacity target of 5GW by 2022 and accelerating from there to reach 30GW by 2030. In April 2018 the Indian Ministry of New & Renewable Energy issued a call for expressions of interest to develop a 1GW offshore wind project on its western coast. likely will follow. From “Offshore wind power: the underexplored opportunity to replace coal in Asia” by Melissa Brown, energy finance consultant, IEEFA
Asia’s offshore wind power opportunity by 2030
Source: Media reports, Government documents, IEEFA estimates
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OPINION
JOel LAYKIN
China’s Silk Road Fund to invest in “Dubai” solar project Secretary-General at IPPF
D
ubai has long been the undisputed marketing, communications center serving South Asia, the Gulf, Africa and a healthy portion of the Mediterranean southern rim. Dubai is now rapidly becoming the centre for energy and power diversification with an emphasis on green technologies and leading edge renewables. The Dubai Emirate is one of the seven separate government divisions that make up the UAE . Whilst Abu Dhabi is the capital of the UAE, the seat of government and also an important player in new technologies via it’s unique zero-emissions city – “Masdar” and their annual “World Future Energy Summit” (WFES) which has become the defining annual event for global new energies. The WFES’s next edition is on January 14 to 17, 2019 in the Abu Dhabi National Exhibition and Conference Center. WFES has become the industry’s ultimate showcase , the “Olympics” , the “Academy Awards” and the “Woodstock” of new ‘Renewables.’ Whilst Abu Dhabi may also be compared to Beijing as a capital city, Dubai is the region’s leading service center and can be compared to Shanghai as a major financial, service, and logistics hub. The importance of the UAE within Beijing strategic thinking was exemplified by President Xi’s recent visit to Africa starting with his first stop along the so-called “maritime” road to the UAE. In subsequent travels South first to Senegal Mr. Xi and his entourage hit on mainly the capital cities in Africa. However, whilst in the UAE, he made an important appearance in Dubai as well as the capital, Abu Dhabi, Beijing obviously recognises that Dubai is more than a ceremonial pit-stop within the “One Belt One Road” strategies. Over 300,000 PRC citizens actually currently reside in the UAE with fully two-thirds based in Dubai, investing in commercial and trading actions and using Dubai as a platform for business expansion into the region. Coinvestors with “China’s Silk Road Fund” in Dubai are DEWA based in Dubai and ACWA Power based in Riyadh. The “DEWA CSP” project is scheduled to be the largest single-site concentrated solar-power plant in the world when it is commissioned. You can bet your bottom dollar, however, that all the solar technology, infrastructure and allied logistics will all come with Chinese characteristics. IPPF’s Expanding Universe (IPPF Focus Groups and Committees) When we first launched the IPPF in December of 2000 and were still within our embryonic “wet clay” years of 2001 and 2002 , the IPPF started with two committees – the “Executive Committee” which is actually the IPPF’s ruling board and which still runs the show and the “Gen-Co” group which at time consisted of members in charge of running power plants in China which at that time was the only country that we focused on outside of Hong Kong. Spurred on by participation in ADB’s annual meetings in 2001 and 2002, the IPPF attracted new members many of whom had diverse corporate agendas and disciplines. Their needs were met by the creation of special interest entities. The resulting “Focus Groups” are listed in our “Functional Committee” rosters. Whilst the IPPF was expanding its areas of industry disciplines, it was growing geographically. First came the ASEAN economies followed by North Asia (Japan, Korea, Taiwan). South Asia soon followed then the rest of the world. This required the developing and maintaining of “Geographic Committees”. As the numbers of energy, power infrastructure, legal and finance members grew, a third group was soon formed called the “Chapters”. An IPPF Chapter is simply a volunteer entity composed of executives at an IPPF member company that maintains offices in any given city. They function like a service club (think of Rotary, Lions or Kiwanis). Their actions are supported by the IPPF Secretariat’s (in Hong Kong) staff and 30 ASIAN POWER
Chinese overseas investments in new energy
Source: IEEFA
resources. For example, we have maintained an “Indonesia Committee” for a dozen years now but are just getting around to forming a Jakarta Chapter at this writing. The main structural difference between a “national” Committee like “Australasia” is that Tasmanian and New Zealand members would find it difficult to meet over a lunch or cocktails except via split-screen I.T. bookups. However, in a given metro area like a Melbourne Chapter, members can more conveniently meet up. Functional/Focus Group/Committees. We list below our focus groups, committees alphabetically: Alliances/ Facilitation; Asset Management; Awards/Nominations; Blockchain; Capital Formation; Carbon; Clean Energy; Co-Generation; Coal Power; Combined Cycles; Communications/Social Media; Construction; Corporate/Social Responsibilities; Deal Flow; Desalinization; Editorial; Education & Training; Electric Vehicle/Mobility; Emissions; Energy Governance; Energy Demand; Energy Efficiencies; Energy Process; Energy Risk; Energy Storage; Energy technologies; Environment; Events; Finance; Fuels; Geothermal; Gas; GenCo; Governance/Ethics; Green Energy; Hospitality; Human Resources; Infrastructure; Insurance; Issues/Policies; Legal; Membership; Marine Services; Maritime; Marketing; Media Relations; Natural Resources/Mining and Minerals; Nuclear; OBOR; Oil Focus Group; Plant Optimisation; Project Management; Publications; Renewable Energy; Research/Analysis; Retreat Steering; Risk; Smart Cities; Smart Grid; Solar; Sustainable Finance and Infrastructure; Water/Hydro Power; Water Systems; Website; Wind Power. Next are the Geographic Committees and they are as follows: Americas; ASEAN; Australasia; Cambodia’s China (internal); China Outreach; Central Asia; Europe; Gulf cooperative Council (GCC); India; Indonesia; Japan; Korea; Malaysia; Mekong; Oman; Philippines; Saudi Arabia; South Africa; South America; South Asia; UK; USA; Vietnam. That’s 24 Geographic Committees. We are on all continents except Antarctica. The Chapters are next and they are as follows: Abu Dhabi; Bangkok; Beijing; Dubai; Guangzhou; Hanoi; Ho Chi Min City ; Hong Kong; Jakarta; Kuala Lumpur; London; Manila; Muscat; Melbourne; New York City; Shanghai; Singapore; Taipei; Vienna; Washington DC. We have 20 “city” Chapters and are about get more started in the Americas. In additional to the above there is the Advisory Council. This groups consists of non-members and functions as a source of policy and strategic guidance for the IPPF Secretariat and its members.
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OPINION
Edward mccartin iii
Generation 3.0 for the IPP Business in ASEAN
I
t’s said that a generation is the time it takes for a baby to grow into an adult and begin making his or her own babies. It’s not a precise number of years, like a moment is not a precise number of minutes or seconds. It’s more a period of time to see changes and developments. The late 1990s was Generation 1.0 of the IPP company. Coming from humble beginnings under a US renewables initiative, the development bank mantra became “buy power, not power plants” to lessen the burden on the sovereign balance sheets of developing nations. American companies piled into the Philippines, Thailand, and Indonesia to build power plants and sell power to the integrated monopoly utilities on long-term power purchase agreements, bringing export credit and commercial financing and fixed price EPC contracts. Then the bottom fell out. US Dollar denominated IPP tariffs were mismatched with locally denominated power sales to customers. The Baht dropped precipitously, as did the Korean Won. Indonesia held on a few more weeks and then collapsed in spectacular fashion. Whilst Thailand honored its contracts, Indonesia struggled. My little company had no real choice but to arbitrate in Indonesia and pray the contagion did not affect the Philippines. Larger companies held on for the promised restructuring. Banks were unhappy, investors more so. Within 10 months of CalEnergy filing an arbitration claim, we had a $630 million award against Indonesia’s PLN for a 60MW geothermal plant in operation and two 80MW units in construction. A week later, the largest IPP, Paiton Energy commissioned its first 645MW unit; a second would commission in October 1999 a week after CalEnergy would get a $680 million judgment against the Ministry of Finance. It was bleak at best. Shortly thereafter a new president would be elected but the economy was still a smoking hulk. Generation 2.0 enters But things started to come around. PPAs and debt packages were restructured. Peace was made. Developers began speaking about new plants. Banks were less excited. Governments wanted to distance themselves from their insolvent utilities but still wanted cheap power. The Private Sector saw how bad it could go and wanted more protection. EPC contractors were desperate to sell equipment. ECAs were desperate to finance such sales but wanted sovereign guarantees. Welcome to Generation 2.0. Generation 2.0 was characterised by government seeking to limit their obligations for power sales, seeking instead to focus on their regulatory role rather than buying and selling power to the public. Indonesia and the Philippines followed the multilateral Pied Piper of competitive markets that would allow purchasers to buy and sellers to sell to whomever they wanted. This would make long term PPAs very hard to make work but would provide sellers with more than one utility buyer who was functionally bankrupt and reliant on government subsidies. The Indonesian experiment failed, tied up in questionable constitutional arguments, roles of the utilitying such a system and the legacy of defaults from a before. Indonesia was thus left trying to get new power plants whilst the government refused to provide support for the functionally insolvent utility. Years of waiting for banks to stop asking for government guarantees finally led the government to enter into contracts for 10,000MW of coal power plants from China supported by full government guarantees. That programme took years longer than expected as financing and construction delays piled up. PLN remained terribly overleveraged with legal shackles prohibiting it from granting liens on its assets and thus forcing it back to the government for support in borrowing. 32 ASIAN POWER
Managing Director at Asia Greentech Pte., Ltd. Asia leads the world’s renewable capacity additions
Source: IRENA (2018), Renewable capacity statistics 2018, IRENA, Abu Dhabi, Fitch
The Philippines also had a slow start, but it finally happened. NPC contracts were maintained but control of the assets was sold to third parties. Filipino companies and banks stepped up and jumped into the market despite perceived challenges of the merchant market. A few foreign investors took part, but the 2008 Financial Crisis would keep most out of the market. Renewables in the third generation As 1999 ushered in Generation 2.0, 2010 ushered in Generation 3.0. Renewables took up a larger role, especially in Thailand and the Philippines and again, the strong local investor and debt markets gave local investors an edge as they were happy to take Baht and Pesos whereas foreigners still sought USD and Euro. The Europeans were still playing especially in renewables. Japanese and Koreans took a leading role with Chinese investors spreading their wings and relying on their manufacturing base and the strong preference for coal plants in many markets needing major baseload increases, and fast (as they had needed in 1995 to 1996). If there have been big changes they are in many ways the role of LNG since gas can now be shipped and not reliant on a pipeline. Nations are seeking to figure out how to incorporate LNG into their systems which for the most part are heavily reliant on coal, which is largely cheap Indonesian coal. At the same time, governments continue to seek to get away from sovereign credit support, but old habits involving subsidies die hard. Generation 3.0 is seeming interesting as new financing structures for renewables are needed but the old school ECA financing for coal fired and large gas fired plants continues. Reducing the cost of capital will continue to be critical for renewables as well as fossil power plants as margins narrow and competition increases. Demand has not slowed, and supply continues to lag. I’m looking forward to it. The good news is that renewables are here to stay, and people are working on methods of how better to incorporate them into grids that are not well integrated. Will Smart Grids have something to do with this effort? Time will tell. The role of coal will be another open question. It’s hard to put the needed MWh on the grid in the numbers needed in most developing markets without large coal fired power stations but the tension between what developing nations need to provide power to their people and the pressure from some developed nations to stop using coal will need to be addressed. Perhaps again LNG can bridge some of the gap.
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